Legal Aspect of E-Commerce: Dealing as a File-Hosting Website in UK

LEGAL ASPECT OF E-COMMERCE: DEALING AS A FILE-HOSTING WEBSITE IN UK

This essay provides an exams relating to those legal issues that UK Companies could encounter operating in the e-commerce field. Specifically, it explores the legal issues relating to those Companies which operate as hosting providers. In doing so, an hypothetic case will be taken into account and the issues included in it will be discussed in accordance with the UK law.

THE HYPOTETIC CASE

Vito Pappagallo Ltd is a UK based company wholly owned by Vito Pappagallo, which operates Pappagallocompany.com, a file-hosting site. Users upload files to the site, and can then download them remotely from anywhere with Internet access. Files can either be password-protected, or unprotected. Vito Pappagallo Ltd charges £10/month for use of their facility. Payments may be by Credit Card or Debit Card, and are sent via HTTPS trusted third party encryption.

Pappagallo's written standard business terms include the clauses :

1. We are not liable for any interruption in access to files stored on our servers
2. You license us to make any use we deem necessary of files you have uploaded
3. We are not responsible for the content of any files you upload
4. Credit Card payments attract a 5% premium, while Debit card payments attract a 2% premium, for instance they cost £10.50 and £10.20 per month respectively.
5. Payment is for a minimum of one year.

Bob is resident in the Netherlands. He has a small business as a photographer, including selling pictures he has photographed, and copyright licenses to make use of those pictures. Some of the pictures are of semi-nude models. Bob wishes to begin selling pictures online. He goes to Vito Pappagallo Ltd’s website, scrolls through the terms and conditions without reading them, and clicks “I agree”. He then pays via credit card (the credit card company is registered in Ireland), and begins uploading pictures to Pappagallocompany.com. When customers later buy photo rights from Bob, he gives them his Pappagallocompany.com password so that they can access the photo files he has uploaded.

Three months later, Bob checks his credit card bill and sees that he has been charged £31.50. He is angry at being charged £ 1.50 more than he expected, and goes to Pappagallocompany.com to cancel his contract. He is unable to locate any contact details for Vito Pappagallo Ltd on Pappagallocompany.com. He calls his credit card company and tells them not to accept any more charges from Vito Pappagallo Ltd. They comply. One month later Bob’s credit card company refuses the next charge from Vito Pappagallo Ltd and charges it a £50 penalty charge, which they are entitled to do according to their payment processing contract with the said company. Vito Pappagallo is angry and wishes to sue Bob for breach of contract.

Nick Pappagallo Toys is a toy manufacturing company based in the US state of California. They wish to own the Pappagallocompany.com domain name, and write a letter to Vito Pappagallo Ltd demanding that the domain name be transferred over to them, or they will both initiate proceedings under the UDRP and sue Vito Pappagallo Ltd for trademark infringement, in particular for “tarnishing and dilution” under S.10(3) of the UK Trade Marks Act 1994. Vito Pappagallo writes back demanding £1 million for transfer of Pappagallocompany.com. He receives a reply inviting him to fly to California to negotiate with Nick Pappagallo Toys.

Vito Pappagallo flies to the USA to meet with Nick Pappagallo Toys. On landing in California he is arrested by local police and informed that he is suspected of trafficking in child pornography. One of the semi-nude models in the pictures Bob has uploaded to Pappagallocompany.com appears to be 17 years old.

THE LEGAL ISSUES

Before starting the exploration concerning the legal issues included in this case, it is important it is important clarify that in the e-commerce, it is possible identify two different categories of online intermediaries. The first category is represented by the Internet Service Providers (ISPs). The latter are those companies which, under monthly fee payment, provide users with the necessary software and hardware to access to Internet and browse the world wide web^[1]. The second category is represented by the Online Service Providers (OSPs) which are companies that, even though do not provide the internet access, offer users to make use of their online services^[2]. The OSPs include those companies which through their websites, consent users to upload files online and download them remotely from anywhere just using an internet access^[3]. According to the online intermediaries distinction explained above, it can be said that Vito Pappagallo Ltd through Pappagallocompany.com, operates in the world wide web as a OSP.

In order to use the facility provides by Vito Pappagallo Ltd (hereinafter OSP), users have to pay the monthly amount of £3.00, payable under the HTTPS trusted third party encryption by credit or debit card. Nowadays, the most common form to buy goods or services in internet, is by means of debit or credit card usage^[4]. This payment instruments contains both personal details and signature of the cardholder which authorise him to be charged the purchases or service to his bank account^[5]. Consequently, companies operate in internet which want to enhance their trust and volume of business, have to ensure consumers a certain level of security over their details which make their payment transaction safe from any online fraud. Once decided the good or service to buy, consumers send their credit or debit card details to the supplier who, after have been confirmed online by the credit or debit card issuer that the card has not been reported lost or stolen and has sufficient credit on it to meet the transaction, released the good or supply the service^[6]. The payment transaction just explained, is executed through an encrypted internet connection which, transforming the readable card details in an unreadable form (binary number), avoids that a party not involved in the transaction, can access to them^[7]. An high level of security, is offered by the Trusted Third Parties (TTPs) that, in United Kingdom, are organisations trusted by the Department of Trade and Industry (DTI) which provide online encryption service to a wide range of bodies across all sectors^[8].

Before buying the service provides by the OSP, users have to accept the so called click-wrap agreement in which are reported the written standard business terms mentioned above. The said agreement, is clearly displayed on the consumers screens whom, after has read it, can decide whether accept or reject its terms. It belongs to a typology of contract in which the contained clauses are entirely defined by one party and the other party has only the power to accept or refuse it by clicking respectively on the ‘I agree’ or ‘I disagree’ button^[9]. According to the manner by which a party can manifest its consent, a click-wrap agreement is defined a contract of adhesion^[10]. This type of contract, which is often accepted by parties, tend to give advantage to the drafter. Indeed, as usually happen, it could contain few clauses that unfairly exempt or limit the liability of the drafter party in case of its negligence or breach of contract^[11]. This circumstance entitles one party to sue the drafter party and, in most of the cases, obtain a liability for the injustice suffered. In my opinion, the terms number 1 and 3 contained in the OSP agreement reported above, could be considered as exemption clauses because both of them exclude its liability in specific circumstances. However, not all the exemption clauses are irredeemably unfair. Indeed, these clauses can be used reasonably by the parties to share the risks between them. For instance, one party can decides to take on a certain risk, in order the contract to be priced as low as possible. This way to allocate the risk, is considered by the law absolutely lawful.

In order to established whether the numbers 1 and 3 mentioned above can be considered unfair, it is important analyse them according to the Unfair Contract Terms Act 1977 (UCTA 1977), which provides a statutory basis for invalidating unreasonable exemption clauses^[12]. The said Act, which can be applied when the parties to the contract deal respectively as a consumer and as a business, establishes the business liability in case of its negligence or breach of contract. The definition of consumer and business has been offered by section 12 of the UCTA 1977, which at its paragraphs (a) and (b) state that:

“A party to a contract ‘ deals as consumer ‘ in relation to another party if (a) he neither makes the contract in the course of a business nor holds himself out as doing so; and (b) the other party does make the contract in the course of a business”^[13].

[...]

^[1] C. Reed and J. Angel, “ Computer Law: the Law and Regulation of Information Technology” , 2007, Oxford University Press, at 233.

^[2] See note 1, at 234.

^[3] One of the main file hosting website it is called “Megaupload” which on the one hand, allows its users to upload files such documents, pictures, video, etc. And download them on their request.

^[4] S. Hedley, “ The Law of Electronic Commerce and the Internet in the UK and Ireland ”, 2006, Cavendish Publishing Limited, at 255.

^[5] N. Ahmad, “ E-commerce and Legal Issues Surrounding Credit Cards: Emerging Issues and Implication ”, 2009, Computer and Telecommunication Law Review, 15(5), at 114 – 123.

^[6] See note 4.

^[7] L. Brazell, “ Electronic Security: Encryption in the Real World ”, 1999, European Intellectual Property Review, Vol. 21, No.1, at 17-27.

^[8] K. Khan, “ Trusted Third Parties ”, 1999, Computer and Telecommunication Law Review, Vol. 5,No. 6, at 158 – 162.

^[9] M. D. Kaustuv, “ Forum-Selection Clauses in Consumers Clickwrap and Browsewrap Agreements and the ‘Reasonably Communicated’ Test ”, 2002, Washington Law Review, Vol. 77,at 481-482.

^[10] W. J. Condor Jr., “ Electronic Assent to Online Contracts: Do Court Consistently Enforce Clickwrap Agreements ”, 2004, Regent University Law Review, Vol. 16, No.4, at 436.

^[11] D. Upex and G. Bennett, “ Davies on Contract ”, 2008, London Sweet and Maxwell, at 81.

^[12] Unfair Contract Terms Act 1977, at http://www.legislation.gov.UK/UKpga/1977/50.

^[13] See note 12, Section 12.